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How to Restore Your Credit Score

Written by: MainStreet10/29/13 - 5:11 PM EDT

By Hal M. Bundrick

NEW YORK ( MainStreet) You've paid off your debt and bailed yourself out of financial prison. Now it's time to restore your credit score: a financial blemish that only time and timely payments can heal. For consumers attempting to build, or rebuild a credit history, secured credit cards can be a useful tool.

Secured credit cards pose little risk to lenders. You make a security deposit to the card, from which purchasing power is guaranteed. The credit card company already has your money, so you would expect to face minimum fees, right?

CardHub has taken a look at the offers and policies of 23 of the largest credit card issuers in the U.S. and found that despite the low credit risk, secured credit cards can end up costing holders more than $100 every year. Even if you don't carry a revolving balance, you'll pay an average of $27 in fees each year. Secured card users who carry a revolving balance of just $300 pay an average of $85 in fees and interest each year.

And that's on top of the average $313 minimum deposit required to carry a secured credit card. The security deposits can actually range from a low of $200, to as much as $500.

"For consumers, secured cards are, in my opinion, the best gateway to credit access, offering the closest thing you can get to guaranteed approval in the credit card space and promoting responsible spending and payment habits in a relatively low-risk environment," says CardHub founder and CEO Odysseas Papadimitriou.

Unfortunately, many consumers make the mistake of applying for as many cards as possible, thinking that success lies in the law of large numbers. That strategy can negatively impact your credit score, defeating the purpose of rebuilding your credit.

And if you're looking for a credit card to help repair your credit history, shop for a card with low fees and interest rates, rather than rewards. With bruised credit, most bonus points and rewards programs will be of minimal value, at best.

"For issuers, secured offerings mitigate the inherent risks associated with extending credit to unproven consumers by virtue of the fact that required security deposits double as user credit lines, thereby preventing consumers from racking up balances they can't afford to pay back" adds Papadimitriou. "That's why it's so disappointing to see certain issuers taking advantage of the fact that people with limited or damaged credit don't engage in much price comparison in order to overcharge these at-risk demographics simply because they can, as opposed to doing so for valid risk-management purposes."

To avoid getting caught in a debt trap again, set up automatic monthly draft payments from a bank account for at least the minimum required payment. Then, as cash flow allows, you can add additional payments to reduce the outstanding balance.